Why oil is rising but gas gets cheaper

Higher refinery activity has pushed crude to record highs but helped gasoline prices drop 11 percent. Will the trend continue?

NEW YORK (CNNMoney.com) -- If you're like most American motorists, you've noticed two things lately: Oil prices are at record highs, yet gasoline prices have dropped.

Over the last two months, U.S. crude has gained nearly 25 percent, and is now just pennies away from its all-time high. Yet gasoline futures have lost 7 percent over the same time. Retail gasoline prices have fallen even further, declining 11 percent from the all-time high set in May.

Usually oil and gas prices move in tandem. Yet this time around, analysts say the disconnect is all about refining. If refineries keep churning out gas, and crude doesn't spike too much further, some say motorists could see gas prices under $2 a gallon by winter.

"It's a seasonal play," said Peter Beutel, a former trader and now an oil analyst at the consultancy Cameron Hanover. "People buy gasoline ahead of the [summer] season and sell it during the season."

That play was more pronounced this year as lots of maintenance and a series of accidents kept refineries from producing normal amounts of gasoline during the spring.

The record low gas supplies prompted fears of a shortage during the summer driving season, and that helped prices to hit an all-time high of $3.227 back in May.

But over the last six weeks, gasoline stocks have been rising and refineries have been operating at increasingly higher rates.

With summer more than half over, its likely gasoline prices will continue to fall.

"It's really going to take something extraordinary to get prices to spike mid-season," said Stephen Schork, publisher of the industry newsletter the Schork Report, who said retail gasoline prices could fall to around $2.70 by the end of September. "You'd need something catastrophic to disrupt supply."

Nearly everyone agrees that if something catastrophic did happen - like a massive hurricane in the Gulf of Mexico knocking out refineries - gasoline's decline would come to a quick end.

But another variable spoiling the party could be crude prices.

Just as more refining activity has led to more gasoline supplies and cheaper gas prices, it has also caused higher demand for crude. That higher demand, combined with the break down of peace talks in Nigeria and longer-term projects for greater worldwide demand and decreased supply, has fueled oil's recent rally.

If crude breaks over its all-time high of $78.40 - it was within cents at the time of this writing - and remains above $78 for a few days "Then I think we're going to $95," said Beutel.

"If crude breaks out, gasoline will have to come along for the ride," he said.